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Sales of adviser practices slip in Q1
April 29, 2011 / 6:07 PM / 7 years ago

Sales of adviser practices slip in Q1

SAN FRANCISCO (Reuters) - Advisers eager to monetize or build their practices through sales or mergers suffered a slight setback in the first quarter as fewer deals were consummated, according to a new report.

The number of registered investment advisers who sold or merged their firms fell to 23 from a record 25 in the year-earlier quarter, while the average size of acquired firms slipped 39 percent to $904 million of client assets under management from $1.5 billion for all deals done in 2010.

The data were assembled by Charles Schwab Corp, the biggest provider of investment products, trading and custodial services to the registered investment adviser community.

The first-quarter deal count is off the pace for all of 2010, when Schwab tallied 109 acquisitions of RIAs with managed assets totaling $156 billion. That was the highest deal total since Schwab began tracking RIA acquisitions in 2003.

David DeVoe, managing director of strategic business development at Schwab Advisor Services, cautioned that data from a single quarter are insufficient for drawing conclusions about annual trends.


RIAs who are nearing retirement or looking to build their practices through affiliations with larger firms have increasingly been combining with other RIAs rather than with banks, broker-dealers or consolidators that buy controlling interests in the firms.

The interchannel acquisition trend, which began about two years ago, accounted for 55 percent of first-quarter deals, underscoring RIAs’ “growing sophistication in M& achieve their business goals,” DeVoe said.

Schwab’s findings closely parallel a report released April 27 by Bank of New York Mellon’s Pershing Advisor Solutions LLC, another large broker for clients of RIAs.

Banks, which had been prominent buyers of small advisers early last decade, “have faded in prominence” as active buyers, according to Pershing. In 2010, about half of all active buyers

were other RIAs.

Although the average size of deals declined in the first quarter, a larger number of acquired firms were in the $250 million-to-$1 billion range, DeVoe said. The flip side, which brought down the average deal size, is that active buyers also are buying more small practices.

Pershing reported that 18 percent of all practices sold or merged in 2010 had assets of $100 million or less. That’s double the percentage of small deals tallied by Pershing in the years 2004 to 2009.


The principal drivers of buyers are the desire for new geographic markets, new services and specialized knowledge in areas such as trust and accounting, DeVoe said.

Dan Inveen, whose consulting firm FA Insight compiled Pershing’s study, said financial considerations remain the principal motivation of most small sellers.

“Unless the owner’s preferred resolution is shuttering a firm, some type of a sale, merger or acquisition is inevitable,” he said.

One alternative to outright sale is for RIAs to buy equity stakes in rivals, particularly if they fill a strategic gap.

“We’re seeing more of a networking trend taking place,” said Mike Watson, director of practice management solutions at TD Ameritrade Holding Corp, another large custodian for clients of independent advisers. “These RIAs are definitely interested in having conversations with one another.”

Reporting by Philipp Gollner, editing by Jed Horowitz

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